4 common paths to entrepreneurship

Given the modern economic reality of our time, more people are deciding to go it alone and start their own business.

Some people do it because they have spent years training and becoming educated only to find the “job” they thought was waiting for them doesn’t actually exist.

Others do it because the 9 to 5 grind simply doesn’t work for them and they would rather spend their time creating or working with something that they love and feel passionate about.

Still others want to create a work schedule that fits them and their own life goals.

There are many reasons to want to go out on your own. No matter what your motivation is, you can start today. Tomorrow is the place where dreams go to never come to fruition.

Here are 4 common paths to entrepreneurship and why multi-level marketing is the best one.

1) Start from scratch

Starting your business from scratch means your starting at the ground level. Floor one. No one knows who you are or what you’re doing until you speak up.

From scratch means you scrape together seed capital (the initial funding used to begin creating a business or a new product) and begin by telling the world what you are up to by advertising, marketing, and word of mouth.

Then, you work your bag off. You sink fifteen hours a day, six or seven days a week into making your new business work.

It can be very exciting – you’re creating something brand new and you’re challenging your business acumen against many others who are already established. Some people thrive in this environment. Many perish.

According to the Bureau of Labor Statistics, 80% of business with employees survive their first year. After that, the number steadily decreases. 70% survive the second year, 50% survive year 5, and 30% survive year 10.

2) Buy a going concern

Another path to entrepreneurship is to buy a going concern.

A going concern is an accounting term. It means that the company is doing well, and it has the resources to continue operating indefinitely until it provides evidence to the contrary.

Buying a franchise or buying an already established business are both ways to buy a going concern.

The main reasons acquiring a going concern fail are because of a lack of adequate funding, because a business plan isn’t prepared, or because of a lack of teamwork.

While many people say they want to run their own business, there are comparatively fewer that are willing to put their money where their mouth is when it comes time to making the business work.

Running a business requires organization, promotion, and risk management. Managing risks requires management and marketing skills and, above all else, commitment. If you’re risking a significant amount of capital, whether its from your savings or from borrowing against your assets, you need to be sure you have the experience, knowledge, personal traits, and the habits you need to succeed.

Even a company that is doing well can falter under new management. The initial excitement that comes with owning a business of your own can carry you passed some obstacles, but just because a business is a going concern when you purchase it, doesn’t mean it will remain so.

3) Start a new concern with a partner

Starting a business with a partner can be rewarding. It can also be a huge drag and damaging to the relationship.

The most successful, rewarding partnerships occur when each member has skills or knowledge that the other lacks. When this balance doesn’t exist, the relationship has a higher probability of becoming toxic, as one partner may begin to feel like they are shouldering most of the weight of the new business and the other is just along for the ride.

4) Multi-level marketing

Many people do not consider themselves to be business savvy, a marketing mogul, or have an original, creative idea they feel could turn into a legitimate business. Many of these people, however, still dream of working for themselves and starting a successful endeavor of their own.

Multi-level marketing is yet another path to entrepreneurship, and it may be the most enticing one.

Multi-level marketing (also known as network marketing) is a business model. It is a strategy used by some direct sales companies that encourages existing distributors to recruit new distributors. New recruits become part of the distributor’s “downline” and a percentage of the recruit’s sales are given to the distributor that recruited them.

Multi-level marketing is easier than starting a business from scratch, it doesn’t require the initial capital that purchasing a going concern does, and it comes without the risks of starting a new venture with a partner.

This path to entrepreneurship is attractive because you don’t have to start at the bottom and go into it alone. You start your own business with a product that has proven brand recognition and has programs that provide information on finding people, how to sponsor them, and how to train them.

Multi-level marketing is somewhat like buying a franchise, but without the 20,000 to 200,000-dollar initial investment that purchasing a franchise often requires.

But that doesn’t mean you don’t need any investment at all. It’s just not as substantial as a franchise. You still need to invest in the product for use and for demonstration.

With multi-level marketing you are going into business for yourself. You are the Chairman of the Board. That means you need to make a financial investment in the product and a personal investment in your recruits. The more involved you are, the more likely you are to find others who are willing to make the same commitment that you did.

Being personally invested in the company and the idea of owning your own business is the only way to become successful with multi-level marketing. The people who go into it thinking it’s a way to easy success and wealth often become disillusioned, quit, and tarnish the industry as a whole.

Sources and further reading

Network Marketing Success for Everyone – Lyle Manery

 

 

 

 

 

 

 

A primer on RRSPs

Retirement seems like a long way off. Nothing but a destination far off in the distance that has little consequence for us in the here and now.

That’s future us’ problem, right?

Unfortunately, not. We’ve talked before about the many advantages of starting to save young.

Planning for retirement is the same thing. It’s a wave best caught early, otherwise you spend the rest of your life paddling frantically to catch up.

Today we’re talking about a little government program developed in the 50s called retirement savings plans or RRSPs.

We’re going to cover everything from what they are and who can contribute to them, to some common myths about RRSPs, and some legitimate concerns about them.

This article has two goals: One is to provide you with enough information that you can feel confident talking about RRSPs. The second goal is to help you make an informed decision as to whether or not an RRSP makes sense for your particular financial situation.

What is an RRSP?

An RRSP is a legally recognized trust with the federal government. It is not an investment itself. It is a special type of investment account where you can hold savings and other investment assets.

There are many types of investments that can be held in an RRSP. These include, but are not limited to:

  • Cash
  • GICs
  • Savings bonds
  • Treasury bills (T-bills)
  • Bonds (including government bonds, corporate bonds and strip bonds)
  • Mutual funds (only RRSP-eligible ones)
  • ETFs
  • Equities (both Canadian and foreign stocks)
  • Canadian mortgages
  • Mortgage-backed securities
  • Income trusts
  • Corporate shares
  • Foreign currency
  • Labour sponsored funds

What you can’t hold in an RRSP: precious metals, personal property (art, antiques, and gems), or commodity futures contracts. Those are the rules.

Who can get an RRSP?

Just about anyone. If you’ve filed a tax return and have an earned income, you are eligible to join the party.

You can open an RRSP with banks and trust companies, credit unions, mutual fund companies, investment firms, and life insurance companies.

Who can contribute?

You, your spouse, or your common law partner can contribute to it; however, it must be closed when you turn 71. At that time, you can withdraw your RRSP savings in cash, convert them to a registered retirement income fund (RRIF), or buy an annuity.

Why get an RRSP?

RRSPs were introduced in 1957 to supplement registered pension plans and encourage Canadians to save for retirement.

While the intention of the program is to set you up better for retirement, I would say the majority of people get them for the tax benefits they are going to experience in the here and now.

With RRSPs:

  • Your contributions are tax deductible

Your taxable income is reduced by the amount you contribute to your RRSP for that year. In a given tax year, you can contribute as much as 18% of your earned income (to a max of $26,010 dollars).

** If you are a member of a pension plan, this will reduce the amount you can contribute to your RRSP. **

  • Earnings are tax-sheltered

Investments within an RRSP can compound without you having to pay taxes on the gains. For the time being anyway.

You do have to pay taxes eventually, but this tends to be in retirement when your income tends to be lower than in you peak earning years.

The one caveat to this is that the funds must stay in the RRSP. In contrast to something like a tax free savings account (TFSA), you will take a tax penalty if you choose to withdraw your RRSP contributions early.

Some unfounded concerns about RRSPs

  • You have to pay taxes on your contributions eventually, so what’s the point?

A popular knock against RRSPs, although it shouldn’t be enough to prevent you from contributing to RRSPs altogether.

Since you get a tax reduction upon your contribution, an RRSP provides a completely tax-free rate of return on your net contribution. This holds true if the tax rate is the same in the year of your contribution and the year you make the withdrawal.

If the tax rate is lower in the year of withdrawal, you get an even better after-tax rate of return.

Even if the tax rate is higher in the year of withdrawal, the benefits of compounding tax free wash out the taxes you’ll eventually have to pay.

  • Having too much in an RRSP means there will be a huge tax bill when you die.

The rules say that your RRSP is included in income on your terminal tax return with tax payable at your marginal tax rate for the year of death.

If you have a surviving spouse or partner, or you have a financially dependent child or grandchild, a tax-deferred rollover will be granted.

You can also take annual withdrawals from your plan during your lifetime to maximize the income that will be taxed at low rates.

Some genuine concerns about RRSPs

Some financial gurus suggest RRSPs are an outdated program that does not reflect the current job market.

Their primary critique is that the program was developed way back in 1957: a time when long term job security was more prominent and people were much more likely to retire in a lower tax bracket than in their peak working years.

We now live in a gig economy. Job precarity is more common and many Canadians spend much of their careers in various entry-level jobs or spend some of their working years dealing with unemployment.

If there is a risk that you will have to withdraw funds from your RRSP early, it doesn’t make sense to put investments or savings into them. And this seems to be the case for a lot of Canadians: 40% of Canadians withdrew from their RRSPs early in 2017.

If this is the situation you find yourself in, you’re better off saving your money in something like a TFSA, which won’t hit you with the tax penalty an RRSP does for withdrawing.

Sources and further reading

Registered Retirement Savings Plan (RRSP)

The five biggest RRSP myths that Canadians can’t stop repeating

How RRSPs work

RRSPs: The Benefits

IT’S TIME FOR CANADA TO GET RID OF THE RRSP: It is a savings scheme that benefits everyone except the people it was designed to protect

These are the situations when contributing to an RRSP isn’t worth it

 

 

 

 

4 things I would tell my twenty-year-old self about money

There are things you only learn with time. For many, personal finance is one of those things.

Maybe it’s the arrogance of youth that causes you to brush off advice about money from your parents and grandparents, or maybe there are just certain life experiences you need to have before you can really grasp things like, how much money it’s going to cost to retire.

Whatever the case is, here are 4 things I’d tell my twenty-year-old self about money. Because maybe I’d have heeded the advice if it came from my own mouth (but, probably not).

1. Start putting money away

This is one I remember hearing a few times. Once when I was 18 from an uncle who said, “Just start, doesn’t matter how small it is. Twenty bucks a month. Just start a savings account and start putting just a smidgeon of your pay cheque in there every month.”

Of course, I brushed the advice off.

But wow is it good advice. Simple and so true.

The greatest financial resource a person has is time. Compound interest is an absolute force of nature (a force that can work for you or against you).

This is something you don’t really appreciate until you see the numbers first hand.

Investing for Dummies put together a cheat sheet where they broke down how much a person would have to save and invest to have 1 million dollars by the time you are 65. The numbers are based on assumptions of a 10% return every year and starting with a savings of 0.

If you start saving when you are 20: You need to save $95.40 per month

If you start saving when you are 30: You need to save $263.40 per month

If you start saving when you are 40: You need to save $753.67 per month

If you start saving when you are 50: You need to save $2,412.72 per month

If you start saving when you are 60: You need to save $12,913.71 per month

Giving your money lots of time to incubate without being touched can change the concept of becoming a millionaire from a lofty dream – only attainable for the precious few – to something really manageable and attainable.

Setting up an automatic withdrawal of $95.40 to go directly into a savings account for investment every month when I was twenty is something I probably wouldn’t have even noticed.

2. You don’t need to be rich to start investing

I spent most of my life up to this point thinking you need to have a ton of money before you can start investing and dabbling in things like the stock market.

Turns out that is just false.

Yes, you may need larger sums of money to make a lot of money investing. But it is completely possible to start small and use it as a way to start making your money work for you (a little thing called passive income – check out another article I wrote for different ideas to generate passive income).

Getting into investing young is great for two reasons:

First, it is a way of saving money that will get you an average yearly return on investment better than what you can expect from a regular tax-free savings account.

There is some risk involved, of course. But you can set yourself up with a relatively low risk portfolio using some of the tools I’ll mention shortly.

Second, starting small gets you learning about investments and getting comfortable with them. This way, when you reach a point in your life when there is regularly more money coming into your account, you’ll know what you’re doing and can really start to make some good money before retirement.

CNN put together a good article on how to get started with investments that serves as a good starting point if this is something you’re interested in. It covers where you should get your advice from, what you should be investing in, how much money you need to start investing, and how you physically make an investment.

3. Pay attention to what you’re spending your money on

Responsible spending is the bedrock of financial health, now and in the future.

The first step towards responsible spending is paying attention to what you’re spending your money on.

Try an experiment: track your purchases for a month. And be honest.

You’ll be surprised how much money you spend on little purchases you think are relatively innocuous at the time.

When I tried this, I was flabbergasted at how much money was going to app purchases, memberships to websites, and buying what I thought was just the occasional lunch.

Tracking your spending lets you see where you stand. It helps you identify areas in your life where you’re spending way more money than you should be. Twenty-year-old me spent way too much money on beer and entertainment. Way. Too. Much.

Here’s your perfect budget as an up and comer, according to Nerd Wallet.

50% of your income goes to necessities – these include rent, insurance, car payments, etc.

30% are for your wants – the dinners out, frivolous purchases, an Xbox… you get the idea

20% is for your future financial health – savings and investments

I could have made this budget work easily way back when if I had just stayed home even just one Saturday per month.

4. Get insurance

A simple fact of life: bad things happen to good people.

As a young man I fit into the category of the prototypical young person thinking that I was invincible.

People’s cars, apartments, and lockers got broken into but that wouldn’t happen to me.

Well twenty-year-old me, sometimes shit just happens. If you’re renting, get renters insurance.

It’s cheap and it covers things like break-ins, damage from a fire or severe weather, and the stuff in your car if your car gets broken into in the parking lot.

Also consider life and disability insurance. Much like investing and saving, the younger and healthier you are when you start, the cheaper it is and the more coverage you’ll have over time.

 

 

 

A guide to investing in your 30s [infographic]

Your thirties is a decade in your life when you really start planning for the future – you’re settling into your career, maybe you’ve met the “one”, kids might be on the horizon, and you’ve had your eye on that bungalow in the suburbs for some time now.

A big part of planning for the future means investing now.

If you’ve never thought about it before, don’t feel bad. Many people in their thirties are in the same spot as you.

This article is here to get you started thinking about investments and point you to some resources that will put you on the road to financial success.

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A guide to guaranteed income certificates

A guide to dividend-paying stocks

A guide to exchange-traded funds

Main source for the infographic

Further reading:

https://www.dummies.com/personal-finance/investing/investing-one-dummies-cheat-sheet/

https://blog.coastcapitalsavings.com/money-help/savings-investments/growing-money-20s-30s/

 

 

A quick starter guide to life insurance

Life insurance can be an uncomfortable topic to think about – no one likes thinking about not being around anymore. Like many things in life, however, it’s the things that can make us feel the most uncomfortable that are the best for us.

The fact of the matter is, life insurance is one of the best decisions you can make for you and the people you care about the most.

And the vast majority of people realize its importance: 90% of people surveyed in a recent study said they believe the person earning the primary income should have it. Herein lies the disconnect. While most say they should have it, comparatively less actually pull the trigger. Only 60% of people in the same study said they have a life insurance policy.

This article is made for people who know the value of life insurance, but don’t know if they should have it or not, and/or don’t know where to start.

I’ll tell you who needs it and cover some basic facts about life insurance that will start you on the path of making an informed decision about life insurance policies.

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Who needs life insurance

Life insurance is for anyone that will have debts to cover after they’ve passed on. These liabilities can come in the form of outstanding loans, mortgages, debts, funeral costs, and living expenses for your next of kin.

It’s supremely important for people who have others that depend on their income, but it also has its place for individuals with no dependents.

The basics

Where to begin? You’re in a good place by starting with learning the basics of life insurance policies.

Before you spend any money on anything, though, make an appointment and talk with an independent insurance broker or a fee-only financial planner.

These two entities will help you make the best decision based on your current life situation, and, because they won’t be the one selling you anything, serve as an objective voice.

Because they’re impartial, you don’t have to worry that you’re getting duped into anything for their benefit and not yours.

Before you go into that meeting, arm yourself with some basic knowledge so you can be an active participant in the discussion and get the most out of your time with them.

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The major types of life insurance policies

There are two major types of life insurance policies, both with their own pros and cons

  1. Term life insurance

Term life insurance is the type that most people think about when talking about life insurance in general.

Basically, you sign on for a certain number of years – ten, twenty, or thirty, most commonly – and you pay a premium every year for that period.

If, god forbid, you pass away during the time you’re paying your premium, your beneficiary (i.e. the person you say you want to give the money to) gets money.

The premium you pay every month and the money going to your beneficiary are agreed upon when you sign up for the policy.

Pros:

The benefits of term life insurance are that the premium is fixed, so you always know what you’re going to be paying; it comes at the lowest possible price; it protects you during the years when you and your family are most vulnerable; and you can pay into it during your prime working years.

For most, your mid-twenties to your fifties are vulnerable years for your family – the kids are growing and are dependent on your income and you’re still trying to establish your place in the world.

Covering your family in case something terrible happens during this time is very comforting.

Cons:

The major drawback to term life insurance is that you get no reward for taking your policy to its full term.

If you’re fortunate enough to live past your policy – and everyone hopes you are – all the money you paid into your policy is kept by the insurance company who issued it.

2. Permanent life insurance

Permanent life insurance is the other major type available.

In contrast to term life insurance, permanent stays in effect as long as you keep paying your premium – it’s essentially an open-ended policy.

Pros:

The first benefit of permanent life insurance is that it will potentially pay out no matter how old you are. If you keep paying the premium into old age, you could die at 95-years-old and still expect your beneficiary to get a payout.

Permanent life insurance policies also accumulate cash value (the amount of money offered to you if you cancel the policy) on a tax-deferred basis and serve as investment vehicles. Basically, they are a way to make your money grow AND protect you in the instance of a tragedy.

Cons:

Permanent policies sound enticing because of the additional benefits, but they come with one major drawback: they’re way more expensive than your standard fixed term.

The premiums on permanent policies can run you as much as 10 to 20 times more than the premiums on a term policy.

Which one do you go with?

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It really depends on your financial and life situation, but the most common is a term policy. It gives you basic coverage at a price that won’t break you financially.

Permanent policies have a lot of beneficial features that can make sense for you under certain conditions.

For example, financial advisors will generally recommend them to people who have already maxed out their contributions to RRSPs, TFSAs, and RESPs and still have more savings than they could spend in their lifetime.

It really depends on where you’re at financially and what your needs are.

Conclusion

Navigating the world of life insurance can be overwhelming and tricky – especially when you don’t know who you can trust. Everyone will tell you their product is the best.

It can also be a tough sell when you have so many other financial burdens you’re trying to cope with. You may be paying down debt, saving for retirement, or just trying to make ends meet in general. But, the investment is worth it. Just knowing the people you care about are going to be okay if you’re gone is comfort enough.

I hope you found the information useful and please feel free to comment below with any questions. Also, follow Healthy Wheys on Instagram, Facebook, and Twitter and follow the blog!

6 ways to use your tax refund this season and 3 you should avoid

We just passed the deadline for getting your taxes filed for another year here in Canada. That means, if you did everything right, you’re either waiting for your refund or you’ve got it already.

According to the Canada Revenue Agency, 57.5% of the people that filed taxes last year got a refund – the average being between $1,750 and $1795, depending on whether you got your money by direct deposit or cheque.

If you’re part of the crowd getting some money back this year, what’s the most meaningful thing you could do with it?

Of course, the right answer depends on your overall financial situation. But here are a few ideas on how to best put your refund money to good use; I’ve also tacked on a few things you should avoid.

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6 good things to do with your tax refund

  1. Exchange some of your cash for American money

The economic tides are changing. There’s concern about Canada-U.S. trade, Canada’s economic growth is tapering down, and rates may rise in the U.S.

Our dollar has been hovering around 77 cents lately and there’s good reason to think it may continue in that direction.

If you’re planning a U.S. vacation any time in the near future, making some exchanges now could save you a good amount of money later on.

  1. Get into the stock market on a bargain

Like our dollar, Canadian stocks are also down.

The way things are now, you could get into a diversified exchange-traded fund or mutual fund to cover the Canadian market for a very reasonable price. Or, you can delve into individual stocks that have gone on sale.

  1. Stock pile some money for a rainy day

You just never know when something might happen (god forbid!) and you need some extra cash. If you don’t already have an emergency fund of several hundred dollars or more, now is a great time for you to get started.

Your tax return comes with the advantage of giving you a solid jump start to saving. It’s much easier to continue adding to an account with some funds already in it than it is to start completely from scratch.

Having some money put away makes good sense financially; it’s good for your psychological well-being too. Knowing your whole empire isn’t going to crumble at the first sign of adversity can help you sleep a little easier at night.

  1. Get yourself covered, or covered better

You and everyone else hopes you’ll never have to file an insurance claim, but it doesn’t mean you shouldn’t be prepared.

In tough times, it’s easy to let your policy lapse or cut back to just the bare essentials. Use your tax return as an excuse to review your current coverage and top up any areas that might be leaving you and your family vulnerable.

  1. Invest in your child’s post-secondary education

Registered Education Savings Plans (RESPs) are investment vehicles available to parents in Canada. They are a tool for generating tax-deferred income and saving for your child’s post-secondary education.

Each calendar year, any amount in the RESP below $2,500 will earn a government grant of 20%. The amount you deposit plus the grant then earns interest until you end up using it when your kid goes to school.

The RESP is a great way to quickly earn a 20% return on your investment. And there’s no better time to add to it then when you get your tax refund.

  1. Invest in your retirement

Money you deposit into your Registered Retirement Savings Plan (RRSP) this calendar year counts towards the refund you get next year. Investing this year’s tax refund in your RRSPs can maximize your return in 2019.

It’s also a good opportunity to take advantage of employer sponsored matching programs, if you’re lucky enough to have them.

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3 things you shouldn’t do with your tax return

  1. Blow it all as soon as you get it

We all want a bunch of stuff that we don’t really need; it’s hard to resist the temptation to blow all the money you just got on a few of these items.

Of course, a few indulgences here and there are okay, but don’t slip into the mindset that tax return money is free money gifted to you. This money is your hard-earned cash that’s been taken off your regular paycheck all year: It’s your income!

Treat it like you would normally treat a paycheck and factor it into your budget.

  1. Pretend your rich for a while

Around tax refund time, it’s easy to slip into a mindset of inflated income without even realizing it. This often happens when you deposit your return directly into your chequing account; the next thing you know, two months has gone by and you’ve blown through your entire return without realizing it.

To avoid this potential pitfall, get your return into a separate account as soon as possible.  Even if you are incredibly disciplined and won’t touch your return while it’s in your chequing account, it’s still not a good idea to let it rest in there.

Most, if not all, chequing accounts come with fees and few offer interest rates on deposits. The ones that do don’t catch up with inflation. You can squeeze much more out of your refund by keeping it elsewhere.

  1. Get sucked into a renovation

I don’t know what it is about Canada, but we’re a country obsessed with real estate and home renos (must be all the HGTV).

Wherever the desire comes from, resist the urge to redo your bathroom or put new countertops in your kitchen. As great as it may look afterwards, the return on your investment for this scale of a reno isn’t very good.

If you’re keen on making changes in your home, focus on updating features that will save you money – replace some old, drafty windows or doors, add insulation under the roof, or pick up a newer, more energy efficient appliance.

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Conclusion

Here’s the bottom line when it comes to what you should do with your tax return: it all depends on your current financial situation and what your budget is like. The most important thing is you sit back and make a wise decision; don’t just blow it like it’s free money.

Have a great week and remember to follow the blog for email alerts when new articles are posted and be sure to follow Healthy Wheys on Instagram, Facebook, and Twitter.